By: Samer Majali |
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© Billypix |
Imagine a world in which airlines operate in a free market, able to realise their full potential through economies of scale, not hampered by barriers that increase costs and curb development, not constrained by archaic bilateral agreements, not overcharged by monopoly suppliers. Imagine a truly international airline free from restricted foreign-ownership regulations and the pressure to be used as a tool of foreign policy. Imagine an airline able to offer its passengers the most efficient service possible, invest more in fleet expansion and innovation. Imagine an airline that competes with other airlines purely on a commercial basis - not dictated by politics and oligopoly - and that generates a healthy profit and even helps to increase the businesses of the entire value chain. Sadly, this aviation utopia is still a dream.
Today, airlines connect the world and oil the wheels of the global economy, yet they are constrained by pressures from both within and outside the industry. Outdated regulations, monopolistic suppliers, inconsistent policies, misplaced competition, incongruent business models, uneven supplies and demands all cripple airlines from functioning as they should in a free-market economy.
While mergers and acquisitions, business alliances and global expansions are common practice in a normal business environment, commercial freedom and rules on unfair trade practices, which are crucial for the long-term sustainability of the industry, seem to be out of the reach of commercial aviation.
UNSUSTAINABLE MODEL
Airlines continue to post poor profitability and suffer financial under-performance as a result of being saddled with massive costs from suppliers along the entire value chain that eats into their bottom-line profitability.
While we operate in a very competitive environment, this cannot be said to be true for many of our suppliers, such as aircraft manufacturers, airport and air navigation service providers, and fuel companies, many of whom enjoy natural monopolies. We are the weakest link in the air transport value chain; this current business model is not sustainable and needs to be re-engineered.
This is not to say that progress has not been made in the past 25 years. There have been some significant improvement made in terms of airline regulation. Many countries have entered into multilateral aviation agreements, helping to liberalise rules for international air transportation and minimise government intervention. The skies continue to open up with an increasing number of bilateral air-service agreements being signed.
Despite tight government regulations dictating foreign ownership, airlines have successfully found ways to bypass these and developed a system of global marketing alliances. Some countries have deregulated their industry, allowing airlines to be privatised or partly privatised, giving private investors the opportunity to manage the airlines as a commercial venture. Almost all the largest airlines are now listed on stock exchanges in Europe or the USA, allowing transparency and fair competition. Privatisation has also led to mergers and acquisitions. The blessing in disguise is that the industry now has a united voice in IATA, which has grown to include 230 airlines.
As Gulf Air celebrates its 60th birthday and Airline Business celebrates its 25th, one thing remains constant; air transportation is the most efficient way to move people and goods across the world and it is here to stay.
I am optimistic about the industry's future but my optimism is conditional. It is vitally important that the industry is given the freedom to operate in a free market to the greatest possible extent and that hurdles to competition in all regions of the world are tackled in a way that ensures healthy competition but that should not unreasonably obstruct the continued development of the industry.
COVER STORY: FEBRUARY 2008
| FROM THE ARCHIVES Majali insists there is still work to be done and you can never rest easily in this business. Royal Jordanian's headcount has shrunk from 5,700 to 4,000 over the last seven years while the carrier has doubled in size, but Majali says more changes to Royal Jordanian's corporate culture are needed |
Source: Airline Business
